The Maryland Comptroller’s Office has issued guidance on the recently enacted 9% sales tax on the sale of alcoholic beverages. The new rate for alcoholic beverages is effective for sales on and after July 1, 2011 and replaces the 6% sales tax rate that still applies to sales of other types of tangible personal property and taxable services.
FAQs – Sales and Use Tax on Sales of Alcoholic Beverages
1.What is the sales and use tax rate on sales of alcoholic beverages in Maryland?
Unlike sales of other types of tangible personal property and taxable services that are taxed at a 6% rate, the sales and use tax is imposed at a 9% rate on the taxable price of alcoholic beverages. The 9% rate on sales of alcoholic beverages replaces the 6% rate and is not in addition to that rate.
2. What is the effective date for the 9% rate on sales of alcoholic beverages?
The 9% rate is effective for sales on and after July 1, 2011.
3. Is the 9% rate calculated in the same way as the 6% sales and use tax on sales of other types of products?
No. By statute, the 6% sales and use tax is imposed on a bracketed basis. The amount of tax due is determined by the sale price in relation to the statutorily imposed brackets. The amount of tax increases one cent from one bracket to the next with 6 cents due on each exact dollar. The 9% sales and use tax is a flat rate. This means that when the tax calculation results in an amount between two whole pennies, the tax is rounded off. The tax computation must be carried to the third decimal place, and the tax then must be rounded to a whole cent using a method that rounds up to the next cent whenever the third decimal place is greater than four, and rounds down whenever the third decimal place is less than or equal to four. For example, if the taxable price of the alcoholic beverage is $8.24 the tax would be $0.74 ($8.24 times 9% = $0.742). If the taxable price of the alcoholic beverage is $8.29 the tax would be $0.75 ($8.29 times 9% = $0.746).
4. How do I report the 9% tax on my sales and use tax return?
You must report the tax you charged on sales of alcoholic beverages separately from the tax imposed on sales of other items. Effective July 2011, the sales and use tax return will include separate lines for tax imposed on sales at the 6% rate and tax imposed on sales at the 9% rate. The revised sales and use tax return will also have separate lines for reporting tax on purchases at each rate as well.
5. I currently file my sales and use tax returns and remit via EFT ACH (Electronic Funds Transfer Automated Clearinghouse). Will I still be able to file and pay my sales and use tax via ACH?
Businesses that have sales and/or purchases subject to the 9% rate will no longer be able to file and remit via the ACH Credit Option or the ACH Debit Option. Instead, you may file and pay electronically through bFile, our free online service for businesses.
Businesses that only have sales and/or purchases subject to the 6% rate may continue to file sales and use tax returns and remit payment via ACH (either Credit or Debit Option).
If you want to pay an outstanding tax liability by credit card, you can do so online at www.officialpayments.com or by calling 1-800-2PAYTAX (1-800-272-9829).
6. What products are subject to the 9% tax rate?
The 9% rate applies to sales of alcoholic beverages as defined in Tax-General Article §5-101(b). This includes sales of beer, distilled spirits, and wine, as well as any beverage or cocktail that may contain a mixture of both alcoholic and non-alcoholic components, including an alcoholic mixed drink, a frozen alcoholic cocktail, an alcoholic coffee drink, and a gelatin shot containing an alcoholic beverage.
7. Are there products that contain alcohol that are not subject to the 9% rate?
Yes. Only products that are fit for beverage purposes and contain one-half of 1% or more of alcohol by volume are subject to the 9% rate. Other products, such as cooking wine and cooking sherry, as well as vanilla and rum extracts and similar items, are not subject to the 9% tax as they are not intended for beverage purposes. There are many personal care products and cleaning products that contain alcohol as well; however, these items are not included in the definition of alcoholic beverage and therefore are not subject to tax at the 9% rate.
8. What about the sale of mixers, such as grenadine, lime juice, or other flavoring, that are used as a component in an alcoholic cocktail?
If you buy a mixed drink that contains both alcoholic and non-alcoholic components, the sale of that beverage will be subject to tax at the 9% rate. However, the 9% tax does not apply to the sale of a bottle of grenadine or similar flavoring or mixer on its own that does not contain one-half of 1% or more of alcohol by volume.
9. How are sales and/or purchases by a tax exempt organization affected?
Effect on sales by exempt organizations:
Sales of alcoholic beverages made by specific types of organizations listed in Tax General Article §11-204(b) are also exempt from the 9% tax on alcoholic beverages.
Effect on purchases by exempt organizations:
Maryland sales and use tax exemptions apply to all purchases for use by the exempt organization, regardless of the applicable tax rate. Therefore, your organization’s purchases of alcoholic beverages made to carry on the organization’s work are exempt from the 9% tax on alcoholic beverages.
10. I own a restaurant and have an alcoholic beverage license. How do I charge tax on sales that include both alcoholic beverages and other taxable items?
The tax must be separately calculated on sales of alcoholic beverages at the 9% rate and on sales of food, non-alcoholic beverages, and other merchandise at the 6% rate. The 9% tax amount must be listed separately from the 6% tax amount on the bill of sale.
11. If I sell food and beverages to groups of more than 10 persons at my restaurant and I impose a mandatory gratuity charge, how should I charge the tax?
If your sales include alcoholic beverages as well as other items, you must apportion the charge for the mandatory gratuity between the two categories. For example, if the total charge amounts to $300, and of that amount $200 is for sale of food and non-alcoholic beverages and $100 is for the sale of alcoholic beverages, then 2/3 of the amount of the gratuity is subject to the 6% tax rate and 1/3 is subject to the 9% tax rate. In this example, if the gratuity charged is $45, the 6% rate on the gratuity would be $1.80 (2/3 times $45 times 6% = $1.80) and the 9% rate on the gratuity would be $1.35 (1/3 times $45 times 9% = $1.35). The bill, therefore, would reflect total tax at 6% of $13.80 ($230 at 6%) and total tax at 9% of $10.35 ($115 at 9%).
12. I heard that Maryland will allow direct shipment of wine from certain vendors beginning July 1, 2011. How will the new 9% tax on the sale of alcoholic beverages apply to this situation?
In order to be authorized to make direct wine shipments to Maryland residents, the law requires that the vendor be issued a direct wine shippers permit, and also requires that the vendor comply with existing tax laws, including the requirement to collect sales and use tax. Therefore, the vendor will be required to charge sales and use tax at the rate of 9% on sales of wine to Maryland residents. If the vendor imposes a separately stated shipping charge, that amount will not be subject to tax. However, if the shipping charge is not separately stated, or if the shipping charge includes a handling charge, whether that shipping and handling charge is separately stated or not, then the entire amount will be considered to be part of the taxable price of wine, and the 9% tax will apply to the whole charge.
If you have further specific questions about the tax change, click HERE to link directly to the Comptroller of Maryland’s website or contact an ECC tax adviser at 301-917-6200 or email email@example.com.